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STICERD Work in Progress Seminars

Venture Capital Funds Size and Structure in a Directed Search Model

Francesco Sannino (Department of Economics, LSE)

Friday 10 November 2017 13:00 - 14:00

Many of our seminars and public events this year will continue as in person or as hybrid (online and in person) events. Please check our website listings and Twitter feed @STICERD_LSE for updates.

Unless otherwise specified, in-person seminars are open to the public.

Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.

About this event

I develop a theory of fund size and structure when fund managers add value to the companies they finance, but their human capital is scarce. I propose a matching model with directed search where managers span their nurturing activity over more projects, and entrepreneurs are privately informed about their projects' quality. Managers differ in the ability to scale up their human capital. I derive necessary and sufficient conditions for positive and negative assortative matching over managerial attention and project quality to emerge. Anticipating positive sorting, managers shrink fund size below the efficient level. Entry of unskilled managers feeds back into equilibrium sorting, increases returns at the top of the distribution - consistently with empirical evidence - and always results in a Pareto-improvement. This offers a new angle to think about policies encouraging entry in the venture capital industry. When extended to a dynamic setting, the model illustrates a novel advantage of closed, finite-horizon funds, which emerge in equilibrium even when they are socially undesirable: they attract the best entrepreneurs, who value the most the exclusive relation that a closed-end fund guarantees. Managers benefit from committing to a size in the first place.

STICERD Work in Progress seminars are held on Fridays in term time at 13:00-14:00, ONLINE, unless specified otherwise.

Seminar organisers: Philip Barteska and Alix Bonargent

For further information please contact Lubala Chibwe, either by email:

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